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Coronavirus
VERY HIGH Source: covid.gov.pk
Pakistan Deaths
23,133
4424hr
Pakistan Cases
1,015,827
4,11924hr
7.88% positivity
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371,762
Punjab
354,312
Balochistan
29,861
Islamabad
86,226
KPK
142,400

ISLAMABAD: The International Monetary Fund (IMF) has reportedly sought a new Circular Debt Management Plan (CDMP) from the government, including a pledge to increase tariff in future, rationalization of subsidy and slashing of circular debt, well-informed sources told Business Recorder.

The country's circular debt is hovering around Rs 2.4 trillion of which the share of PHPL is about Rs 1 trillion. The recent increase in tariff, will reduce the stock of circular debt.

The first step agreed with the IMF, i.e., increase in base tariff by Rs 1.95 per unit has already been notified and the second step is new draft of Circular Debt Management Plan, which is also being given a final shape by the power division, sources added.

As the revised draft of CDMP is ready, it will be presented to the federal cabinet for approval and subsequently the Finance Ministry will share it with the IMF, the sources continued.

The government will mention the timeframe of increase in tariff in future, subsidy allocation and other steps to reduce circular debt, the sources continued.

The sources said the government has already given commitment to the donors that the debts of over Rs 800 billion on the books of PHPL will be converted into a public debt with bi-annual review of power sector performance as per the IMF staff-level agreement for reviews two to five.

According to the plan, the Finance Division is converting PHPL's existing GoP guaranteed borrowings to public debt over the period from FY 2019 to FY 2023 or over an extended period.

"The maximum amount of Rs 800 billion of PHPL's debts would be converted into public debt and Finance Division will make payments to lenders to the extent of principal amount as and when due through cash and: or instruments; and PHPL shall continue to pay interest recovered through tariffs and any shortfall will be met through further debt surcharge by way of amendment in the Nepra Act or efficiency gains," the sources continued.

The Nepra Act is already pending with the National Assembly Standing Committee on Power for approval. As the Bill is cleared by the parliament, the federal government will be empowered to impose surcharge on electricity consumers as and when it deems it appropriate, the sources further added.

The new circular debt plan identifies high T&D losses, low recoveries, failure to rationalize tariffs and insufficient subsidies as the main causes of build-up of circular debt.

The Power Division's main headache is timely release of budgeted subsidy as Finance Ministry never paid due subsidy to the power sector on one pretext or another, which jeopardized the payment plan of companies.

The sources also said the Finance Ministry has released Rs 34 billion during the eight months of the current fiscal year, which reflects delays on the part of Finance Ministry.

Karachi Electric (KE), which is a private entity, is also facing a similar situation due to which the company is facing a financial crunch.

Copyright Business Recorder, 2021